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Future of Australia's Naval Shipbuilding Industry), 3 April 2017, Pp Chapter 3 National long term planning 3.1 The importance of a long term national strategic plan for Australia’s naval shipbuilding industry continued to be a focus during public hearings in the 45th Parliament. This followed similar discussion in the committee's third report, tabled during the 44th Parliament, which recommended the establishment of an ongoing shipbuilding industry advocate providing advice to the government during the development of the defence investment plan and naval shipbuilding plan. The third report emphasised that a national strategic naval shipbuilding plan was central to achieving the goal of maintaining a continuous stream of work for Australian shipyards. 3.2 During the course of the 45th Parliament inquiry, evidence presented to the committee indicated that a naval shipbuilding plan would perform an integral role in assisting small and medium enterprises (SMEs) to identify and plan for opportunities to become involved in the Australian naval shipbuilding industry. A plan would also provide an assurance to the industry that there would be continuous work into the future – enabling economic and employment benefits gained through securing the permanency and longevity of an Australian naval shipbuilding sovereign capability. Witnesses also suggested that a naval shipbuilding plan should go beyond a focus on Australian industry supporting Australian customers, and move towards building an internationally competitive Australian shipbuilding industry which includes non-navy vessels, such as research vessels, police vessels and ferries. 3.3 This chapter examines the current state of the Australian naval shipbuilding industry, key defence-focused industry planning documents, the government's naval shipbuilding plan, economic benefits derived from the industry, and the potential for a national exports industry. The committee then assesses this material against progress made towards implementing a continuous shipbuilding program that would support an indigenous defence industry. Insights from the ANAO's recent report Naval Construction Programs—Mobilisation are also considered. Overview of the Australian naval shipbuilding industry 3.4 Australia's naval shipbuilding industry includes: • The government owned ASC Pty Ltd, which was supposed to have been separated into three independent companies from July 2017: ASC Shipbuilding, ASC Submarine Sustainment (maintenance and support), and Australian Naval Infrastructure (ANI); • Australian and international defence prime companies servicing both commercial and defence production lines; and • SMEs contracted to these primes. 38 3.5 The Australian government, through the Department of Defence, is the major procurer of ships from the industry. In its Defence Industry Policy Statement, the Department of Defence stated that: A robust partnership between Defence and industry and a highly skilled Australian workforce will be critical if we are to deliver shipbuilding and submarine programs of such national significance.1 3.6 Australia's shipbuilding and repair services industry consists of 448 businesses in both defence-related and commercial industries.2 A snapshot of market share by major players in the Australian industry is below, followed by a breakdown by state and territory of business locations. 3 3.7 Figure 3.1: Snapshot of market share by major players in the industry 4 3.8 Figure 3.2: Breakdown by state and territory of business locations 1 Department of Defence, 2016 Defence Industry Policy Statement, February 2016, p. 8. 2 IBISWorld, Industry Report C2391 Shipbuilding and Repair Services in Australia, February 2018, p. 3. 3 IBISWorld, Industry Report C2391 Shipbuilding and Repair Services in Australia, February 2018, p. 22. 4 IBISWorld, Industry Report C2391 Shipbuilding and Repair Services in Australia, February 2018, p. 3. 39 3.9 The Department of Defence Industry Policy Statement states that 25,000 people are employed by the Australian defence industry, with prime companies accounting for 50 per cent of employment in the industry. Approximately 3000 SMEs operate in Australia as subcontractors to prime companies.5 Key planning documents 3.10 Prior to the release of the government's naval shipbuilding plan and subsequent planning documents from May 2017 and onwards into 2018, the 2015 RAND report and the 2016 Defence White Paper provided insight into the government's strategic direction for the shipbuilding industry in Australia. The content of these reports, along with the announcements outlined in Chapter two, culminated in the eventual publication of the government's naval shipbuilding plan, which is discussed further below. 2015 RAND Corporation report 3.11 In September 2014, the Department of Defence commissioned the RAND Corporation to undertake a series of material studies and analysis activities to inform the development of an enterprise-level naval shipbuilding plan for consideration by the government.6 3.12 On 16 April 2015, the government released the RAND report titled Australia's Naval Shipbuilding Enterprise: Preparing for the 21st Century.7 The report explored the question of whether Australia should support a domestic naval shipbuilding industry or buy ships from foreign shipbuilders. The report found that: 1. Production of naval warships in Australia involves a 30 per cent to 40 per cent price premium over the cost of comparable production at shipyards overseas. This premium could drop over time, however, with steady production drumbeats and mature designs. 2. The economic benefits of a domestic naval shipbuilding industry are unclear and depend on broader economic conditions. That said, the industry could potentially employ more than 2,000 people in long-term positions. 3. Controlling critical production offers wider strategic benefits and flexibility. It would avoid dependence on foreign sources; enable performance of ship alterations, modernisations, and life-of-class maintenance; and support in- country suppliers. 5 Department of Defence, 2016 Defence Industry Policy Statement, 2016, p. 6. 6 RAND Corporation, Australia's Naval Shipbuilding Enterprise: Preparing for the 21st Century, 2015, p. iv. 7 The Hon Kevin Andrews MP, Minister for Defence, 'Release of the RAND Corporation report', Media Release, 16 April 2015. 40 4. Sustaining a naval shipbuilding industry will require specific steps. These include adopting a continuous build strategy starting with the Future Frigate and matching industrial base structure to demand.8 3.13 As part of implementing a continuous build strategy, the report proposed four strategies 'to close the short-term gap in demand for naval shipyard workers while retaining the ability to build all the planned warships domestically'. This included the option to commence construction of the Offshore Patrol Vessels by the end of 2017 and the Future Frigate class before 2020. This option, along with the recommendation to adopt a continuous build strategy, was adopted by the government.9 3.14 On 4 August 2015, the Hon Tony Abbott MP, Prime Minister, and the Hon Kevin Andrews MP, Minister for Defence announced that the government would implement a continuous build of surface warships in Australia. In addition, the government announced that it would bring forward the Future Frigate program (SEA 5000) to replace the ANZAC class frigates, and the construction of the Offshore Patrol Vessels (SEA 1180) to replace the Armidale class patrol boats.10 3.15 Some stakeholders, however, did not agree with this option proposed by RAND, arguing that it relied disproportionately on ship production in one state (South Australia) to the detriment of other states. For example, the Western Australian government submitted that the report contained limited content on the shipbuilding capabilities and capacities of Western Australia and other states.11 3.16 The committee was informed a second RAND review was underway which focussed on workforce, basing and facilities.12 Various stakeholders advised they had been contacted by people involved in the second RAND review. The Western Australian government indicated that the inquiry was likely to take into account the capability and capacity of Western Australia's infrastructure and industry to deliver 13 naval shipbuilding programs beyond building minor vessels. 8 RAND Corporation, Australia's Naval Shipbuilding Enterprise: Preparing for the 21st Century, 2015, p. xxxviii and xxxix. 9 RAND Corporation, Australia's Naval Shipbuilding Enterprise: Preparing for the 21st Century, 2015, p. xxix. 10 The Hon. Kevin Andrews MP, Minister for Defence, 'The Government's plan for a strong and sustainable naval shipbuilding industry', Media release, 4 August 2015. 11 Western Australian Government, Submission 56.2, p. 11. This assessment was also supported by Senator Linda Reynolds, Committee Hansard (Future of Australia's naval shipbuilding industry), 3 April 2017, pp. 6–7. 12 See, for example, Ms Deidre Willmott, Chief Executive Officer, Chamber of Commerce and Industry of Western Australia, Committee Hansard (Future of Australia's naval shipbuilding industry), 3 April 2017, p. 33. 13 To this point, they also noted that they were seeking clarity from the Commonwealth Government on how the RAND study, and other studies undertaken in the later half of 2017, would factor into the future infrastructure planning and investment in Western Australia. Refer to Western Australian Government, Submission 56.2, pp. 6–7. 41 3.17 The Department of Defence advised the second report's publication would likely occur
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